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UBS Reads Tax Bill, Says No Way Does It Pass

The just released Tax Cut And Jobs Act (surprisingly, the "Cut Cut Cut Act" moniker was quietly rejected), has 429 pages, which however was not an obstacle for UBS bankers to read it and, within the hour, not only opine on it, but throw up on its chances of passage.

As UBS chief economist Seth Carpenter writes shortly after noon, "to our read, the release confirms our view that tax reform is far from being a done deal. The bill contains several specifics that we believe will prove sticking points, which increase the difficulty of finding the votes to support the plan in both the House and the Senate."

Fast fwding to Carpenter's conclusion: "We maintain our view that tax reform is unlikely this year or next."

And the details:

On the cost side, the plan includes several items that are expensive

The combination of lowering the corporate tax rate to 20%, the increase in the family tax credit, and the elimination of the alternative minimum tax are all costly plans that will require substantial revenue offsets to keep the overall size of the tax plan within the Senate's $1.5 trillion deficit over ten years. In addition, we presume that the new household tax brackets will, on net, cut household taxes. The repeal of the estate tax is also an expensive line item.

On the revenue boosting side, the plan includes items that are unpopular

Eliminating special-interest deductions – this line item likely aims at corporations that currently pay relatively low marginal tax rates. We believe this line is likely to reduce the subsidies to the energy sector, the pharmaceutical sector, and other large corporate interests. Push back from these groups will be large.

State and local tax deduction and the mortgage interest cap – the elimination of these two deductions are aimed at the high-tax states. Although these states are predominately Democratic, a substantial number of Republican representatives hail from those states and have already stated opposition to these reductions.

Modernize the international tax system and prevents jobs, headquarters, and research from moving overseas – the talking points on international taxation are similar to those used for border adjustment earlier this year . At that time, a coalition of retailers quickly rallied in opposition, effectively ending the proposal. Any hint of border adjustment will likely lead to a resurgence of that lobbying effort.

We await the details; we maintain our view that tax reform is unlikely this year

We have long held the view that finding the revenue offsets for the ambitions tax reform plan would be difficult. By our estimate, the plan needs to find something on the order of $3 to $4 trillion in revenues. The only way to achieve such large offsets is to eliminate or drastically reduce current deductions or subsidies. Any group that loses their specific subsidy will likely oppose the plan.

Meanwhile, the Tax Foundation put together the following graphic detailing the impact of the Tax Cut And Jobs Act on sample taxpayers:

Finally, in case there is someone who actually wants to read the full bill, here it is in, in all its 429 page glory: